Volume 30, Number 4 (Fall) 1995
Blackburn, McKinley L. 1995. "Decomposing Wage Variation: A Comment on Michael P. Keane's 'Individual Heterogeneity and Interindustry Wage Differentials.'" Journal of Human Resources 30(4):853-860.
Keane (1993) uses panel data to control for the effects of time-invariant individual characteristics when estimating the effects of industry on wages. He concludes that these individual effects can account for 84 percent of the industry-associated variation found in typical cross-section studies. I argue that this conclusion is based on a misleading wage variance decomposition that would tend to overstate the importance of individual effects. A reconsideration of Keane's results shows that his estimates are of a similar magnitude to those of earlier studies that attempt to control for individual ability.
McKinley L. Blackburn is an associate professor of economics at the University of South Carolina. He thanks David Neumark and Dennis Oberhelman for helpful comments. The data used in this article can be obtained beginning in June 1996 through June 1999 from the author: Department of economics, College of Business Administration, University of South Carolina, Columbus, SC 29208.
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